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Labour Legislations and State Laws from a business and compliance perspective




In this chapter, students will learn about the following:

  1. Labour welfare legislations applicable to any business
  2. Exemptions for small businesses
  3. Local law applicable for running an office or a shop
  4. Compliance requirements under the legislation applicable to factories
  5. Local tax law applicable to employees, professionals and self-employed persons.
  6. Compliance requirements for employing contract labour and migrant workmen
  7. Labour welfare laws relating to provident funds, gratuity, maternity benefits, minimum wages
  8. Law applicable to trade unions


There are a host of laws that apply to any commercial establishment, shops or manufacturing unit the moment the number of employees engaged cross 20 (or 10 for some laws). If it is less than 20, certain laws will still be applicable, but you will still probably fly under the radar for the labour department to take notice and haul you up – unless of course, your enemies or competitors (they have to be knowledgeable about the requirements themselves) complain about you to the labour department.

There are serious consequences of not following labour laws – the most major being the kind of harassment that leads to loss of productive hours and mental peace of senior managers and owners. However, there are imprisonments prescribed for many offences arising out of violation of labour laws, and usually the top management of a company will be responsible and punishable for these offences which makes entrepreneurs vulnerable.

This part covers a brief description of the most universally applicable labour statutes and compliance requirements under them – such as any registrations, registers to maintain in the premises and annual returns to be filed.

A. Overview of labour legislations

Some labour legislations are universally applicable to all establishments – e.g. Payment of Wages Act, Equal Remuneration Act, Minimum Wages Act, etc. However, it is possible for small establishments to claim exemptions under the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988 (discussed in more detail below) (Exemption Act). An entrepreneur who is just beginning or early stage business will not be required to comply with such laws if the business complies with the requirements under the Exemption Act. Most other labour legislations may become applicable to establishments if they employ above a certain number of workmen – e.g. 5, 10, 20 or 100 (20 being the most common threshold).

Although many labour legislations are enacted at the central level and apply across India, e.g. the Factories Act, the Standing Orders Act, etc., these laws empower state governments to make their own rules. Therefore, in addition to the central act, you may have to also look at the rules made by the state government in the state where a particular business is operating, especially for the compliance requirements and procedural aspects. In addition, states have enacted their own law on various subjects such as professional tax acts (which impose obligations on employers, professionals and self-employed persons), shops and establishments acts, labour welfare fund acts, etc.

This chapter will provide a broad idea of the central and state legislations a business is most likely to face. In addition, a business in a particular sector or in a particular state may require additional licenses. For example, a computer games parlour may require an entertainment tax registration, using a boiler will require compliance with the Boilers Act, and any business in Kolkata may require a trade license from the local municipal corporation.

How should you use this reading material?

An entrepreneur should know the thresholds well, so that he is able to identify which laws he will have to comply with. Procedural details and compliance requirements need not be learnt by rote and should be referred to when necessary.

Consultants, working professionals and those aspiring to work in a decision making or managerial capacity should also have a sense of the framework applicable to large establishments.

In general, learners should aim to gain a perspective of the substantive obligations under the statutes. They should know, for example, under what circumstances does the Factories Act apply, which entities are required to register under the state professional tax act, or the shops and establishment acts.


Note that the salary thresholds and the percentage of contribution which is required to be made by an employer under a particular threshold are subject to frequent change. It must be re-confirmed with the latest notification of the centre or the relevant state government at the time.


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